Don’t Do This With Your Money
When it comes to managing money, no one wants to make dumb mistakes. Take a look at how some seemingly smart moves can backfire.
1. Contributing the minimum to your 401(k) – Sure you’ve got other obligations, but skimping on your 401(k) contribution can cost you big time. Simply upping your annual contribution by $1,000 for the next 30 years means you could have $153,110 more for retirement than you would otherwise. (That’s assuming a 7-percent return and a 50-percent employer match.)
2. Having lots of credit cards – A wallet full of credit cards may give you peace of mind, but having more than two can damage your credit score and increase your temptation to spend. And the bigger your credit card balances, the smaller the pool of money available to sock away in your 401(k).
3. Getting a big tax refund – It’s nice to get that refund check at the end of the year, but why give Uncle Sam free use of your money? The smart move may be to adjust your withholding so you can keep more cash each month. That will give you more money to contribute to your 401(k), which can reduce your taxable income even further.
4. Cashing out your 401(k) – When you leave a job, it’s tempting to take the money and run. But don’t. This move means that you could be assessed a 10 percent penalty on the value of your account plus income taxes. But that’s not all. Cashing out your 401(k) is like throwing your potential for future tax-deferred growth out the window.
5. Saving for college – You want your kids to go to college, but not at the expense of your own retirement plans. A better alternative may be to fully fund your 401(k). Your kids can always take out low-interest loans for college. But no one is going to loan you money for retirement.
Source: Money magazine’s “50 Smartest Things to Do With Your Money” and “15 Dumb Moves;” money.cnn.com
For informational purposes only. Should not be construed as legal or investment advice, a promise of benefit or guarantee of investment performance.